Factual and Procedural Background
This appeal arises from a judgment of Judge Teare concerning a contract of affreightment between a shipowner and a charterer. The contract involved shipments of iron ore pellets from Brazil to Malaysia, with the shipowner providing tonnage. The dispute centers on seven shipments scheduled between July 2015 and June 2016. The first two shipments were not provided by the charterer without defence, and the focus of the trial and appeal concerns the third to seventh shipments.
The factual backdrop includes a catastrophic dam burst at an iron ore mine in Brazil on 5 November 2015, which halted production and made it impossible to ship pellets from one load port during the period in question. Although an alternative supplier at another port was unaffected, the judge found that supplier would have been unwilling to supply the charterer’s group even if reasonable efforts had been made.
The judge found that even absent the dam burst, it was likely the charterer would not have been able and willing to supply the cargoes for the disputed shipments. The charterer relied on an exceptions clause in the contract to excuse non-performance, but the judge held it was not entitled to rely on this clause because the failure to supply did not result solely from the dam burst. The judge awarded nominal damages for these shipments, and the shipowner appealed on damages while the charterer cross-appealed on liability.
Legal Issues Presented
- Whether the charterer was entitled to rely on the exceptions clause (clause 32) in the contract to excuse its failure to supply cargoes due to the dam burst.
- Whether the charterer needed to prove that, but for the dam burst, it would have performed its contractual obligations ("but for" causation test).
- Whether the judge misapplied the compensatory principle in assessing damages, specifically whether substantial damages were recoverable by the shipowner despite the charterer's breach.
Arguments of the Parties
Charterer's Arguments
- Clause 32 is a force majeure clause that lists events beyond the parties’ control and excuses liability if such events render performance impossible.
- The charterer argued it was not required to prove it would have performed but for the dam burst; it sufficed that the dam burst made performance impossible.
- Reliance was placed on a line of authority stemming from Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA, which held that a party invoking a force majeure clause need not show readiness to perform absent the force majeure event.
- On damages, the charterer contended the shipowner could not recover substantial damages because the contract could never have been performed due to the dam burst.
Shipowner's Arguments
- The judge correctly applied the "but for" test requiring the charterer to prove it would have performed absent the dam burst to rely on the exceptions clause.
- The Bremer line of authority was inapplicable because it concerned contractual frustration clauses, not exceptions clauses.
- The exceptions clause should be construed strictly, requiring causation linking the event to actual failure to perform.
- On damages, the shipowner argued the compensatory principle requires comparison between the innocent party’s actual position and the position if the contract had been performed, entitling it to substantial damages.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Bremer Handelsgesellschaft mbH v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd's Rep 109 |
Established that in a contractual frustration clause, a party need not prove readiness to perform absent the frustrating event. |
The court distinguished this case as involving a contractual frustration clause that cancels the contract automatically, unlike the exceptions clause in the present case which does not. |
| Bremer Handelsgesellschaft v Westzucker [1981] 2 Lloyd's Rep 130 |
Interpreted causation language in frustration clauses, explaining "preventing fulfilment" means performance was prevented by the event assuming readiness to perform. |
The court noted this authority but held it was not applicable to the exceptions clause under consideration. |
| The Furness Bridge [1977] 2 Lloyd's Rep 367 |
Used to illustrate interpretation of causation requirements in exceptions clauses. |
The court paraphrased this case to support the requirement that performance failure must have resulted from the event. |
| Bunge SA v Nidera BV [2015] UKSC 43, [2015] 2 Lloyd's Rep 469 |
Affirmed the compensatory principle in damages for breach of contract, emphasizing damages should put the claimant in the position as if the contract had been performed. |
The court applied this principle to conclude that awarding substantial damages would be unrealistic given the underlying facts. |
| Robinson v Harman (1848) 1 Exch 850 |
Established the fundamental compensatory principle for contract damages: to place the injured party in the position as if the contract had been performed. |
The court reaffirmed this principle as central to the assessment of damages in the present case. |
| The Golden Victory [2007] UKHL 12, [2007] 2 AC 353 |
Confirmed that damages for breach of contract must reflect the actual value of the contractual benefit lost, including subsequent events affecting performance. |
The court relied on this to support the approach to damages assessment, emphasizing realistic financial comparison. |
| Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173 |
Encouraged an iterative approach to contractual construction, considering language, context, and commercial consequences. |
The court used this approach to interpret clause 32 in light of its wording and commercial purpose. |
| One Step (Support) Ltd v Morris-Garner [2018] UKSC 20, [2018] 2 WLR 1353 |
Reaffirmed the compensatory nature of damages for breach of contract and the need to quantify loss as the difference between actual and hypothetical performance. |
The court cited this authority to reject the approach that the reason for breach affects the damages calculation. |
| Wertheim v Chicoutimi Pulp Co [1911] AC 301 |
Supported the principle that damages aim to compensate for loss of contractual bargain. |
Referenced by the court to underline the compensatory principle in damages assessment. |
| Burnett Steamship Co Ltd v Danube & Black Sea Shipping Agencies [1933] 2 KB 438 |
Established that exceptions clauses require proof that the party was ready to perform during the event causing delay or failure. |
The court applied this principle to interpret the "time lost" provision in clause 32, supporting the causation requirement. |
| Tradax Export SA v Cook Industries Inc [1982] 1 Lloyd's Rep 385 |
Discussed the interpretation of contractual clauses relating to performance and causation. |
The court referred to this case to distinguish contractual frustration clauses from exceptions clauses. |
| Taylor v Caldwell (1863) 3 B&S 826 |
Held that impossibility of performance is not a defence to breach of contract absent frustration or illegality. |
The court cited this to affirm that inability to perform due to the dam burst does not excuse breach absent a valid defence. |
Court's Reasoning and Analysis
The court began by examining the exceptions clause (clause 32) and its wording, emphasizing that it is an exceptions clause excusing liability for breach rather than a contractual frustration clause which cancels future obligations. The court found that the clause imposes a causation requirement: the failure to supply must "result from" the event and the event must "directly affect" performance.
The judge’s factual findings established that even without the dam burst, the charterer would not have supplied the cargoes. Consequently, the failure to supply did not result from the dam burst and the charterer could not rely on the exceptions clause to excuse its breach.
The court distinguished the Bremer v Vanden Avenne line of authority as relating to contractual frustration clauses, which automatically cancel contracts upon the occurrence of certain events, unlike the exceptions clause here. The court held that the exceptions clause requires proof that but for the event, performance would have occurred.
Regarding damages, the court reaffirmed the compensatory principle, which requires assessing damages by comparing the innocent party’s actual position with the position had the contract been performed. The judge’s approach, which compared the actual position with one where the charterer was merely ready and willing to perform (rather than actually performing), was rejected as inconsistent with this principle.
The court held that the reason for the breach (i.e., the dam burst causing impossibility) does not alter the assessment of damages. The charterer’s absolute obligation to supply cargoes means failure to do so constitutes breach, and damages must compensate the shipowner for the loss of the contractual benefit.
Holding and Implications
The court DISMISSED the cross appeal on liability and ALLOWED the appeal on damages.
The charterer was held not entitled to rely on the exceptions clause because it would not have performed even absent the dam burst. However, the shipowner is entitled to substantial damages for breach of contract. The damages awarded for the five shipments in issue amount to US $19,869,573, reflecting the value of the contractual benefit lost.
This decision clarifies the distinction between exceptions clauses and contractual frustration clauses, emphasizing the strict causation requirements for exceptions clauses and reaffirming the fundamental compensatory principle in contract damages. The ruling confirms that inability or unwillingness to perform, absent a valid contractual defence, results in liability for damages based on the value of the performance promised, not hypothetical readiness to perform.